Three big banks to cut commissions

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Mortgage brokers are facing cuts of up to 30% in commission paid by some banks from October. The cuts are expected to result in widespread changes in the industry, encouraging diversification and mergers between groups.

Friday, July 20th 2007, 5:39AM

by Maria Scott

ANZ and sister bank National Bank have confirmed that they will be introducing new commissions model from October 1. Payments to brokers will be approximately 30% lower overall than under the current arrangements. ASB is planning to cut by an average of about 20 to 25% from the same date.

The move to cut commissions was lead by ANZ in April when it announced plans for reductions from June, stating that profit margins on mortgages no longer allowed for the existing levels of upfront payments to brokers. The ANZ postponed its move after intervention by the New Zealand Mortgage Brokers Association.

Discussions have continued and a spokesman for National Bank said: "We have now finalised a commission structure which we consider is both workable and fair for all parties - given the dramatic decline in mortgage margins we've seen in the past year or two." The spokesman for National Bank said its new commission rate would include a commission level of up to 60 basis points, depending on volume. But overall the reductions would be 30%. ANZ's commission structure will be similar.

After the NZMBA's intervention, a group of brokers put proposals to the banks for changes to the way commission is structured to recognise the quality and volume of business, and to reintroduce trail commissions.

There were also suggestions about ways to reduce discounting in the industry. It is understood that the proposals received limited recognition from the banks although ASB is proposing a new system that it says will recognise the quality of business provided by some brokers.

Ian Park, head of retail banking at ASB said that some brokers would see commissions reduced by only 12% a result of the new structure. ASB is circulating its proposal to brokers now. Park said it would note responses from firms but had already consulted widely and believed it was "90% there" in reorganising its commission payments.

Westpac has said little about its intentions although it is assumed to have been watching moves by competitors. The bank said this week that it had nothing to add at present.

It is barely three years since major banks abolished trail commissions to brokers and the cuts now proposed for upfront commission have been greeted with dismay by many in the industry.

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